The Augusta rule survived. The deduction did not.

The strategy itself is real and has been in the tax code since 1976. Section 280A(g), often called the Augusta rule, lets a homeowner rent out a residence for fourteen days or fewer each year and exclude that rent from income entirely. Pair it with a business that pays the rent and deducts it, and the same dollars leave the company deductible and arrive at the owner untaxed. The internet loves this strategy, and for good reason, because when it is done correctly it works.

Three business owners who ran a fitness franchise through an S corporation put it to work. Each rented his own home to the company for monthly shareholder meetings, at roughly three thousand dollars per month per home. Over three years the company deducted about $290,000 in rent, and the owners excluded the corresponding income under the Augusta rule.

When the IRS examined the returns, the court did not strike the strategy. It struck the implementation. The owners could not produce minutes, agendas, calendars, or any credible evidence of the business actually conducted at most of the claimed meetings. They also had no independent support for the rental rate, since the three thousand dollar figure came from one owner's own research rather than an appraisal or comparable listings. The IRS ran its own market research and found that meeting space in the area rented for about five hundred dollars for a full or half day.

The Tax Court allowed five hundred dollars for each meeting the owners could actually document, which came to roughly $16,500 of the $290,000 claimed. The remaining amount was disallowed. The rule remains fully available to the next taxpayer who uses it, which is exactly the point. The strategy was never the problem, and the paperwork was.

What holding it up would have looked like is not complicated. Meetings that really happen, minutes taken at the time that record what was discussed, a rental rate supported by comparable local listings or an appraisal kept on file, and payments that match the documented schedule. None of that is expensive, and all of it has to exist before the examination starts rather than after.